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Key Constraints on the Business Environment in Moldova

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Key Constraints on the Business Environment in Moldova The National Confederation of Employers of the Republic of Moldova Key constraints on the business environment in Moldova Chisinau, 2013 Contents: Acronyms ......................................................................................................3 Executive Summary ...................................................................................4 Recommendations .....................................................................................7 Introduction .................................................................................................9 Political elements ....................................................................................11 1. Peace and political stability .................................................11 2. Good governance ....................................................................14 3. Social dialogue .........................................................................20 Economic elements ................................................................................24 1. Enabling legal and regulatory environment .................24 2. Physical infrastructure ...........................................................37 Social elements ........................................................................................40 1. Education, training and lifelong learning .......................40 2. Labour force ..............................................................................41 3. Labour Code and Social Protection ..................................45 International Labour Organization This publication has been published with the financial support of the (Bureau for Employers` Activities of the) International Labour Organization. The responsibility for the opinions expressed in this report rests solely with the author. The International Labour Organisation (ILO) takes no responsibility for the correctness, accuracy or reliability of any of the materials, information or opinions expressed in this report. 2 Acronyms AEI Alliance for European Integration NACP National Agency for Competition Protection CC Competition Council ILC International Labour Conference CSIR Center for Strategic Investigations and Reforms NCCCN National Commission for Collective Consultations and Negotiations NECM National Employers’ Confederation of Moldova NTCM National Trade Unions Confederation of Moldova EESE Enabling Environment for Sustainable Enterprise GEA Program “Efficient Enterprise Administration” IDIS Institute for Development and Social Initiatives SME Small and Medium Enterprises IOE International Organization of Employers ISS Institute for Security Studies MEC Ministry of Economy ODIMM Organization for Developing Small and Medium Enterprises ILO International Labour Organization PARE 1+1 Program for Attraction of Remittances into the Economy GDP Gross Domestic Product PNAET National Program for Economic Mobilization of Youth TIC Information and Communication Technologies WEF World Economic Forum 3 Executive Summary This report assesses key constraints to directing investments. Redressing Moldova’s the development of private businesses in rankings in international business along with Moldova in eight key areas: (1) peace and good governance ratings should become political stability, (2) good governance, (3) social an immediate priority for the Moldovan dialogue, (4) legal and regulatory environment, Government. (5) competition, (6) physical infrastructure, (7) In the same time, redressing the country’s education and training of the labour force, and international image without properly fixing (8) labour code and the protection of human the economic realities is simply impossible. capital. The assessment was done using In this regard, the perceptions of Moldovan the secondary analysis of existing data and enterprises concerning current business by comparing Moldova with a number of conditions are, again, negative and in most of countries. The primary data gathered during the cases quite aligned with the international the business survey undertaken in April – May ratings. 2013 with about 200 Moldovan enterprises of various sizes, locations and sectors of activity Political instability seems to generate was also used. particularly deep concerns among Moldovan enterprises. It is likely that because of the The countries chosen for comparison are fact that the survey had been conducted in a Bulgaria, Estonia, Lithuania, Romania and period of political and governmental crisis, the Slovenia. These have been chosen considering absolute majority - 83.9% - of the participating a number of criteria such as geographical businesses have stated that the periods of proximity, common historical developments political instability troubled very much the and their economic similarities in the recent development of Moldovan enterprises. Indeed, past. The secondary data used in this report during the undertaken business survey, this show that Moldova performs consistently has emerged as the most problematic factor, worse than any other comparator country in emphasizing that the dysfunctionality of key almost all dimensions assessed. This is a rather state institutions during periods of political disappointing finding, considering the fact turbulence has a direct negative influence on that in order to enter a more sustainable path of these companies. economic development, Moldova desperately needs more investment capital than it currently This in turn, is reflected in the level of their has at its disposal. Foreign direct investments trust in state policies. More than 78% of are the only available source that could provide the respondents regarded the legal and the necessary investments; however, investors regulatory framework of the Republic of have been easily scared away from Moldova Moldova as failing to foster the operation and and chose other countries to invest in. In this development of enterprises. The exact same regard, the poor quality of governance and share of companies claims that corruption and that of the business environment as a result of bribery are major barriers for business activity this poor governance have an essential role on in Moldova. About one third of respondents 4 (33.2%) claim that enterprises similar to theirs burden, which ranked second in the top have to bribe “frequently” or “systematically” of problematic factors, right after political in order to solve various problems in their instability. This is regarded as a strong or very relations with supervisory authorities. strong constraint by 68.8% of the interviewed Moreover, more than two fifths of respondents businesses, especially by those located in the state that the Government is not sufficiently regions. A similar perception, although not dedicated to tackling corruption. so vastly spread (52.2%) has been recorded in It is also relevant that most people (over 70%) relation to the level of shares for state social perceive that the Government is insufficiently and health insurances. cooperative with its dialogue partners Competition is another area of concern representing the business environment. for Moldovan companies. One third of the Probably that is why around 4 out of 5 surveyed companies believe that there are companies believe the social dialogue carried anti-competitive practices in their sectors, a out through the tripartite committees is view particularly spread among micro- and inefficient, may that be at the national, sector small enterprises. At the same time, more or territorial level. than 40% of businesspeople regard the anti- Overall complex and unstable regulations trust legislation as inefficient in combating affecting Moldovan companies require a lot or controlling this phenomenon. Another of time and professional qualified efforts from worrisome figure, 55% of the respondents the part of enterprises in order to be dealt believe that the current legal framework is with. More than 62% of managers or owners disadvantageous for small enterprises. And as of the interviewed enterprises believe that the a final remark in the competition area, almost time spent to comply with the Government’s 60% of the interviewed companies believe regulations is a major problem for the that political connections are needed in order enterprise, with this problem being particularly to be able to benefit from governmental severe for companies in the regions. support programs. What is particularly striking and somehow While in international comparison, the quality contradicting other studies, is the fact of the Moldovan infrastructure may not look that almost 60% of the interviewed particularly bad, the domestic perceptions businesspeople believe that in Moldova it are troublesome: 72.2% of the surveyed is fairly easy to obtain licenses, permits and enterprises report significant costs incurred by authorization for businesses, while at the the enterprise because of the underdeveloped same time, 63.4% of respondents state that or inappropriate shape of the physical the general rules for issuing these licenses, infrastructure. permits and authorizations in Moldova only Coming to the researched social elements, meet the minimum standards of quality and one of the most striking information is that transparency.. vocational education gets a merely 10% of Fiscal administration, including the calculation the total funding allocated for education, and recording, the payment of taxes, as well as which is not enough to modernize the system the reporting have been identified as the most and to train specialists
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